What is brown color code in mutual fund?
As per SEBI guidelines, the color coding scheme for mutual funds divides each mutual fund into three distinct categories of low risk, medium risk and high risk. All mutual funds labeled as brown offer a high risk of investment to the investor. Equity funds including diversified funds, large and small cap funds along with index funds are usually labeled as brown owing to their higher risk for the investor at large.
Earlier Mutual Funds used to have colour codes for identifying risks. Brown colour was one of the colour codes. There were three colors blue, yellow and brown representing low, medium and high levels of risks respectively.
To help investors understand the risks associated with Mutual Fund investments, the Securities Exchange Board of India (SEBI) has made it mandatory for all fund houses to display a riskometer depicting the five levels of risk. This was introduced with effect from July 1, 2015.
According to SEBI rules, the riskometer will have to be displayed on the front page of the Mutual Fund application form next to the name of the scheme. These colour codes will help investors understand the financial risks associated with the scheme. As per SEBI’s circular, ‘The depiction of risk using colour codes would be replaced by pictorial meter named riskometer and this meter would appropriately depict the level of risk in any specific scheme.’
The riskometer has five levels of risks. It looks similar to a car’s speedometer and indicates the scheme’s risk level. The five risk levels are ‘low’, ‘moderately low’, ‘moderate’, ‘moderately high’ and ‘high’. Let’ see each of them one by one.
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